AT&T not planning to subsidize iPhone? - Page 2

It definitely makes more economic sense from a consumer point-of-view to pay up front for the hardware rather than, in effect, taking out a loan over the contract period. I'm just afraid that's not how Americans like to do things in general, and especially in the cell phone market.

Dunno about anyone else, but that makes great sense to me, and it's how everyone else outside the U.S. markets is doing it now. In Australia, for instance, you pay full fare for the hardware -- which may or may not be sold by the carrier -- and then you pay a much lower monthly rate.

I wish that model was catching on in the US. Phone reliability would probably go way up, because consumers would likely refuse to accept poor phone reliability/quality if they had to pay full boat for the hardware.

Sadly, that model doesn't seem to be gaining traction in the US. It seems easier to get Joe Sixpack to sign up if you wave a 'FREE' phone in his face. Plus, the need to pay off the phone subsidy over time provides justification for the contracts consumer are placed under and which carriers love, since they 'lock in' their customer base reliably ("Hey look, even if our service sucks for a few months its okay, they can't jump ship unless they pay a big fat early termination fee! Muhahaha!").

If the phone isn't subsidized, then the justification for contracts disappears, as there's zero benefit for the customer for being in a contract then- only a benefit for the carrier. \

For the dumbass that said Apple wants to price the iPhone so that everyone couldn't get, you must think this is early 2k. Apple has learned their lesson about the "BMW" comparison. Their computers are priced so everyone can get one, the iPod is priced to everyone can get one. Why would they not want everyone to have a phone. They could give 2 shits about you felling hight and mighty because you can get a phone, as long as they money hand over fist.

Also factor in that Verizon is still the leading network and they tag anyone with 175.00 early termination fee. So if Cingular is looking or switchers in contact you are talking well over 800.00 by the time everything is said and done. That just isn't going to happen for a cell phone, even more so when most of the people that want it have to rely on their parents to buy it.

That's fine. What's not been directly refuted (even answered directly) is the notion that ATT may offer steep discounts in its service plan and make the downstroke issues simply go away. This, we Americans understand, and deal with in other categories nicely (think auto buying and all the retail "finance offers" out there that we go for all the time).

So here's the proposition for those of you not selling for a living:
"If I could get you to take the best phone/pda technology platform in the world -- bar none -- and then lower your monthly fees for an extended period... even build in something that takes away the contract termination fees... wouldn't you want to take one home today?"

So are you saying its a good idea to market to the smallest demographic? Thats like nvidia trying to market the 8800 card for high level pc gaming when you could by an entire ps3 for the same price as a video card.

No, I'm saying it's marketing to the Porsche and Ferrari crowd, something most of us can only wish to be... it's called 'aspirational' marketing.

It's also my opinion that Cingular will use Apple to bait and switch, the iPhone will be a great marketing tool to get customers into the store and then sell them something else with a nice 2 year contract, which is what Cingular wants the new contracts they can care less about selling iphones thats not what makes them money.

Cingular will do both. They'll try to sell iPhones because the kind of customer that wants an iPhone is exactly the kind of customer they want... high-end, and probably a data plan user on top of it. And yeah, they will also use the iPhone as a 'flagship' product, to get butts in the front door whom they'll sell on other phones if the iPhone is too pricey for them. Win-win, far as ATT is concerned.

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Yet again my opinion is that a 600.00 phone on top of being locked into a 2 year contract can not do well, at least in the US.

Also factor in that Verizon is still the leading network and they tag anyone with 175.00 early termination fee. So if Cingular is looking or switchers in contact you are talking well over 800.00 by the time everything is said and done. That just isn't going to happen for a cell phone, even more so when most of the people that want it have to rely on their parents to buy it.

Overall its an uphill battle unless there is a major price drop.

One thing you have to realize is that every month, something like 10 million US wireless consumers come off their contracts, due to the term simply being up (which is around 60 million people from June through the end of '07). There isn't a customer shortage here, at least not for the kind of numbers Apple is trying to sell initially.

When Apple eventually goes mass-market with the iPhone, then its a potential bottleneck, but by then Apple will likely be selling through more carriers than just Cingular/ATT (no matter what the rumors are about the exclusivity clause in the contract with ATT- the exact details have been kept intentionally vague by both Apple and ATT... read between the lines).

For the dumbass that said Apple wants to price the iPhone so that everyone couldn't get, you must think this is early 2k. Apple has learned their lesson about the "BMW" comparison. Their computers are priced so everyone can get one

You consider $599 minimum for a computer that doesn't include any of the essentials beyond a power cord priced for everyone? I certainly don't.

So here's the proposition for those of you not selling for a living:
"If I could get you to take the best phone/pda technology platform in the world -- bar none -- and then lower your monthly fees for an extended period... even build in something that takes away the contract termination fees... wouldn't you want to take one home today?"

So far, I don't remember any rumor touching on any changes to the termination fee.

I don't see service providers offering lower monthly call charges, but I do see Apple imposing some kind of inclusive data allowance. Apple will want their users to be able to get full use out of the iPhone from the start. If people have to pay top end for the phone, then that's fine, but they won't sell many if people aren't then willing to use the features they are paying for.

I really don't understand why some people say that they are staying clear of the gen 1 iPhone. I replace my phone every year, sometimes more, so if a second gen iPhone comes out 12 months later then I'll upgrade. I would rather have the early technology and enjoy it than hold out for a 3.2 mega pixel camera which I won't use any more than the current offering. Granted I live in the UK, so in reality my phone will quite likely be a 3G gen 2 handset anyway by the time we get it at the end of the year!

In the US I wish they would just switch to just outright buying the hardware of choice and lowering the cell phone plans. The problem is the method is just so deeply set right now that people expect cheap/free phones, its like a culture.

I also don't believe Cingular can lower rates for only one product, there would be no incentive for them to do so because Cingular is making very little if anyting off the iphone for them all the money is in the contract. I still believe they are going to use the iphone to get people into the store and then sell them something cheaper with a long term contract.

I could certainly be wrong but it wouldnt shock me at all.

I think you have logic backward wrt lower rate. Cingular is SPENDING nothing on the iPhone as opposed to paying motorola or others for the privilege of giving away their phones. This is why you have to pay tax on the list price, not the final price. Since Cingular/AT&T is SAVING money by offering the iPhone they COULD lower the plan price. No reason they can't have a specific plan for the iPhone. Don't know if they will but it would make sense to do so.

Well Apple will have to change there outlook if they want to go mass market because Cingular is the only one that would agree to this deal, they were told to go pound sand by Verizon.

I think Apple is using the carriers against one another, in the same way they are using the major music labels against one another in a different, yet similar in some ways, battle over contract terms.

The idea is likely that the iPhone will be such a success for ATT, both in terms of attracting the most profitable (read, high end & data) customers and in being a flagship product that gets people into the ATT stores (to be sold on other products even if they can't afford the iPhone) that Verizon will eventually buckle and give Apple something close to what it wants in contract terms.

I don't know how well that'll work, because VZW is a pretty conservative, 'business fundamentals' kind of company. But if the iPhone ends up being a nice strong cudgel for ATT to beat Verizon about the head and shoulders with, Verizon will likely have to do a deal eventually. I just hope Apple isn't too intransigent in their negotiations, thus delaying a deal... VZW definitely has a better network and customer service overall compared to ATT, and is perhaps the one US network that truly complements the quality of the iPhone.

Verizon may end up needing Apple, but Apple needs Verizon perhaps more than it realizes as well.

I don't see service providers offering lower monthly call charges, but I do see Apple imposing some kind of inclusive data allowance. Apple will want their users to be able to get full use out of the iPhone from the start.

What would be really smart is if ATT/Apple offered something like 60 days of data, FREE, up front. The iPhone is, after all, a 'breakthrough Internet device', and if you let people use it as such, they're likely to become hooked and become long-term, paying data plan customers... something that's been a huge challenge to attract for the wireless industry as a whole.

Of course, the user experience here would be better if the iPhone was 3G. \

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I really don't understand why some people say that they are staying clear of the gen 1 iPhone. I replace my phone every year, sometimes more, so if a second gen iPhone comes out 12 months later then I'll upgrade. I would rather have the early technology and enjoy it than hold out for a 3.2 mega pixel camera which I won't use any more than the current offering. Granted I live in the UK, so in reality my phone will quite likely be a 3G gen 2 handset anyway by the time we get it at the end of the year!

I think the iPhone's sheer expense prevents many people from thinkin' in 'oh, I'll get the gen 1 one, and then just get the gen 2 one when it comes out' -type terms.

Some of it is also pretty legit... no 3G on a phone with the iPhone's pricing and internet functionality is pretty disappointing, even if it is perhaps more ATT's fault than Apple's (ATT's EDGE coverage is great, but their 3G coverage is still 'getting there').

We are talking about a subsidy to CUSTOMERS who sign up, and buy the phone.

Sorry, guess I wasn't clear. If Apple is receiving money from AT&T then AT&T may still be subsidizing the phone, i.e. the 'unlocked' price would be even higher than the $500-$600 being proposed. We can't know since the 'unlocked' price is not being revealed.

Said another way, since there are payments from AT&T to Apple the $500-$600 price may represent a subsidized price.

So are you saying its a good idea to market to the smallest demographic? Thats like nvidia trying to market the 8800 card for high level pc gaming when you could by an entire ps3 for the same price as a video card.

Apple is interested in profits. So, if the demographic will give you the greatest profit, then yes, by all means, sell to a smaller audience.

There is also the value of building up a brand name. That doesn't happen by coming out with cheaper products at first.

First you have to sell to the top of the market, and get a high quality reputation. Them, if you do it carefully, you can move down-market with the product line.

But, it must be done slowly, and carefully.

If you take a look at other companies, you will see that it is exactly how they operate. It doesn't matter what industry they are in.

Moto failed to understand that. They were too eager to re-gain marketshare.

If you start out with a cheaper product, it's difficult to get the consumer to take a more expensive product from you seriously. The cheaper product will always be associated with the brand.

It's like Hyundai coming out with a high end car. But, with both Mercedes and BMW coming out with cheaper cars, the situation is reversed.

You look at a luxury Hyundai as an expensive car from a manufacturer of cheap cars. But, you look at the cheaper cars from Mercedes and BMW as less expensive versions of their expensive models.

It's attitudinal marketing. It took both Toyota and other Japanese manufacturers a couple of decades before the American and European consumer accepted them as high quality manufacturers.

Apple doesn't have much time with the products they make, because the electronics industry has much shorter acceptance timescales.

They have to establish their brand almost immediately.

That's what they are doing. It's what they did with the iPod.

Next year, they should also have less expensive models out, and improve their top line phones as well. That way they maintain their brand image while allowing people who covet their expensive models, but who can't afford, or who won't spend that much, to buy a less expensive version.

I see no problem here.

In fact, the announcement that there will be no subsidy gives the brand a boost, because Apple is saying to people that their phone is so good, that it's worth the money.

Remember, Apple is only going for a 1% marketsharefor now.

Unlike computers, where the OS is a wall in front of people wanting to make a move to Apple's products, the OS here is neither positive or negative.

A phone doesn't have that barrier. The prices for phone software are low. If Apple does allow third party software, as Jobs pretty much said that they would, then developers will flock to the phone quickly, even if Apple puts itself between them and the user. A community will build up quickly.

I agree with what Apple is doing here, as long as they follow through properly, and from how they handled the iPod and iTunes, I have confidence that they will do so here as well.

Sorry, guess I wasn't clear. If Apple is receiving money from AT&T then AT&T may still be subsidizing the phone, i.e. the 'unlocked' price would be even higher than the $500-$600 being proposed. We can't know since the 'unlocked' price is not being revealed.

Said another way, since there are payments from AT&T to Apple the $500-$600 price may represent a subsidized price.

It still wouldn't matter, as the $500 to $600 is the price people see, and therfore, the one that people relate to.

There is nothing more than speculation, at this time, that Apple is receiving anything from Cingular.

There is definitely a lot of truth to that. Subsidies are never 'free', they're simply paid off over the life of the contract.

The RAZR was a huge sales hit for Motorola throughout its entire lifespan, until recently (now that it's stopped being 'cool' to have one/everyone has one/many other phone makers now offer thin phones).

RAZR margins decline

"Interest in the RAZR remains good," Kort adds, "but profit margins on the RAZR line have substantially declined." Motorola is now charging "a small fraction" of the $500 original price for RAZRs at launch.

Because the RAZR is only about Hardware.
The iPhone is about Hardware and Software and as long as the processors in it are good and the quality is great, the software can update the thing for the next decade.

All of you oldsters out there remember when you bought a new telephone about as often as you bought a new house?!?!

I'd pay $500 for a phone that would be cool and work well for 5 years and that had its own internal upgrade cycle. With a good clear cover on it, there is no reason you should need to buy an iPhone anymore often than you buy a laptop. This is the business model that AT&T doesn't get yet and why the contracts and such are hard to define.

Now I sure don't know if the materials would really last that long, and I know the market is different now and everyone want to upgrade every year or two with almost every electronic device, and I'm sure software will increase in complexity to drive upgraded hardware requirements, but I think the forgotten issue here is that as Jobs said in his keynote, this thing can last a long time and they can "change the buttons!"

The RAZR is not the right comparison or analogy. This will be something new once it gets out in the open air for a year or two.

The Mother of all flip-flops!!Support our troops by educating yourself and being a responsible voter. Democracy and Capitalism REQUIRE Intelligence and Wisdom if they are to be worth a damn beyond...

I think you have logic backward wrt lower rate. Cingular is SPENDING nothing on the iPhone as opposed to paying motorola or others for the privilege of giving away their phones. This is why you have to pay tax on the list price, not the final price. Since Cingular/AT&T is SAVING money by offering the iPhone they COULD lower the plan price. No reason they can't have a specific plan for the iPhone. Don't know if they will but it would make sense to do so.

I believe that the amount that AT&T "saves" from not subsidizing the phone will go to Apple due to their agreement that Apple gets a percentage of the monthly service. So I wouldn't count on the plan price being lowered.

Sorry, guess I wasn't clear. If Apple is receiving money from AT&T then AT&T may still be subsidizing the phone, i.e. the 'unlocked' price would be even higher than the $500-$600 being proposed. We can't know since the 'unlocked' price is not being revealed.

Said another way, since there are payments from AT&T to Apple the $500-$600 price may represent a subsidized price.

I see what you are getting at and I agree that AT&T is paying Apple a portion of the iPhone contracts, but it is not a "subsidized" payment.

The way it works with subsidized cellphones is simple. You sign a contract, purchase (or get for free) a phone, and the carrier pays the hardware manufacture the amount described in the contract for the sale of the phone. The type of services or length of time the hardware is in use does not affect the amount paid to the manufacturer.

The problem with this model is obvious. Manufacturers are competing to sell you cheaper and cheaper phones. Since the manufacturer no longer has a revenue stream it needs to sell you another phone as soon as it can. This can lead to hardware that isn't designed to be rugged or long lasting.

If AT&T were paying Apple directly for the difference in the hardware price, then it would subsidized. They said they aren't, and I believe them. But it's obvious the iPhone's retail value is more than $500 and that Apple will be making a profit somewhere.

So what scenario allows Apple to make a profit without technically subsidizing the hardware?

The one I can think of allows Apple to make an even greater profit than it ever could by following the current carrier/manufacturer paradigm:

Apple purposely decides to break even on selling the iPhone hardware. AT&T agrees pay Apple nothing for each hardware sale and to charge wholesale prices for the iPhone. Apple then receive a portion of each month's subscription dues.

This is good for the consumer as Apple's profits no longer come from trying to sell us new phones every 6 months, but from being committed to constantly upgrading the iPhone's software and making AT&T's interactive network options (eg: Visual Voicemail) more viable and useful for the consumer. This also means that Apple has no reason to hold back on making the iPhone most durable, advanced and longest lasting phone it can. In fact, Apple's only concern is to make the phone and it's services as good as possible as a customer disenchanted with the iPhones reliability is the most likely reason they will permanently lose a customer.

Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"

Because the RAZR is only about Hardware.
The iPhone is about Hardware and Software and as long as the processors in it are good and the quality is great, the software can update the thing for the next decade.

That's an extremely good point. However, I do not know if its possible to update the iPhone from 2.5G (EDGE) to 3G, by just updating the software. And of course, storage capacity isn't getting updated by software.

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All of you oldsters out there remember when you bought a new telephone about as often as you bought a new house?!?!

I'd pay $500 for a phone that would be cool and work well for 5 years and that had its own internal upgrade cycle. With a good clear cover on it, there is no reason you should need to buy an iPhone anymore often than you buy a laptop. This is the business model that AT&T doesn't get yet and why the contracts and such are hard to define.

Oh, ATT and the other wireless carriers 'get it'... they just would prefer to keep you locked down in a contract, and the way to do that is to subidize phones. The subsidy is the bait, the contract is the hook. Customer bites down on the 'free' or cheap phone, and is reeled in for the next 2 years.

The iPhone is an even better hook, because it may not be subsidized to the consumer at all, yet still require a contract. That's like a hook with no bait on it. Well, the bait is how awesome the iPhone is, but still.

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Now I sure don't know if the materials would really last that long

Cellphones, as built by most major handset makers these days, do not last 5 years in most cases, sad to say.

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The RAZR is not the right comparison or analogy. This will be something new once it gets out in the open air for a year or two.

Great point. The question is, will ATT and Apple want to sell it in the way you envision? My guess is, ATT at least, will not. They, like most US carriers, like the traditional model, with its customer contract lock-in.

Of course, if Apple had other ideas, they might be able to change the game, in the same sort of way that they are for DRM-free tracks in the music industry. But with DRM-free, there was something in it for Apple. What's in it for Apple to sell you an iPhone that lasts 5 years? I'm not saying there isn't anything, but I'd be curious to hear what other people have to say about this.

So what scenario allows Apple to make a profit without technically subsidizing the hardware?

The one I can think of allows Apple to make an even greater profit than it ever could by following the current carrier/manufacturer paradigm:

Apple purposely decides to break even on selling the iPhone hardware. AT&T agrees pay Apple nothing for each hardware sale and to charge wholesale prices for the iPhone. Apple then receive a portion of each month's subscription dues.

This is good for the consumer as Apple's profits no longer come from trying to sell us new phones every 6 months, but from being committed to constantly upgrading the iPhone's software and making AT&T's interactive network options (eg: Visual Voicemail) more viable and useful for the consumer. This also means that Apple has no reason to hold back on making the iPhone most durable, advanced and longest lasting phone it can. In fact, Apple's only concern is to make the phone and it's services as good as possible as a customer disenchanted with the iPhones reliability is the most likely reason they will permanently lose a customer.

If that is what Apple is doing, it is genius (though I'd think ATT still technically passes on to Apple the customers iPhone purchase dollars as the 'break-even' price for the hardware).

Totally upends the current (rather crappy) industry model, would help out ATT immensely by reducing customer churn (which is a huge cost to wireless carriers), and builds Apple's brand to high heaven. The system's incentives are all towards a better user experience. Hope it's true.

Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.

Agreed, and there is almost no chance the iPhone will be subsidized.

But, on the other hand, if the carriers are subsidizing current phones, don't they have to make up the difference on their monthly plans/rates and commitments. So, because the iPhone is not going to be subsidized shouldn't the monthly plans/rates reflect this lack of subsidy, or at bare minimum not require a 2 year commitment.

just waiting to be included in one of Apple's target markets.Don't get me wrong, I like the flat panel iMac, actually own an iMac, and I like the Mac mini, but...........

But, on the other hand, if the carriers are subsidizing current phones, don't they have to make up the difference on their monthly plans/rates and commitments.

Nope. The monthly plan price is the monthly plan price pretty much, regardless of whether you supplied your own phone or paid full retail for it or whatever. And, in fact, if you do supply your own phone and go 'sans contract', you'll lose your 'promotions'... stuff like free nights, free weekends, free m2m. It's really quite insidious.

Overseas apparently its different, but in the US I haven't heard of any large carriers offering monthly plan discounts for folks supplying their own phone/buying one at full retail. If someone does hear about somethin' like that, let me know, 'cuz I might be interested in takin' them up on it.

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So, because the iPhone is not going to be subsidized shouldn't the monthly plans/rates reflect this lack of subsidy, or at bare minimum not require a 2 year commitment.

Nope. It's whatever the market will bear. The plans won't be reduced price for the same reason the phone likely won't be subsidized... because they'll sell tons of 'em regardless.

It still wouldn't matter, as the $500 to $600 is the price people see, and therfore, the one that people relate to.

There is nothing more than speculation, at this time, that Apple is receiving anything from Cingular.

Sorry, but it does matter as the question is whether the $500-$600 is a subsidized price, or not. At least that's what I'm talking about.

Since this thread is about this AI report then based on this quote from the report

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Overall, the analyst said he walked away from the meeting believing that AT&T's revenue share with Apple could be a more meaningful portion of monthly average revenue per user than previously thought. He explained that this is possible given the "significantly better economics" AT&T should realize from iPhone subscribers, given the lower "churn" and cost of adding each user to its network with advertising and branding help from Apple.

Apple will receive money from the CUSTOMER in two ways.

1) Some percentage of the sale price of the hardware

2) Some percentage of the AT&T contract revenue.

To me this is no different in total, than any other subsidized phone, just a higher price that other subsidized phones, and no non-subsidized purchase price being offered.

It may be different in that other carrier-phone maker contract call for a payment for the hardware up front from the carrier instead of over the life of the contract but I simply don't know.

You may argue that the AI report is wrong but it say that Apple will receive monthly payments from AT&T they're just arguing over how much.

To me this is no different in total, than any other subsidized phone, just a higher price that other subsidized phones, and no non-subsidized purchase price being offered.

subsidizeverb [ trans. ]
pay part of the cost of producing (something) to reduce prices for the buyer.

It's lexical semantics, but there is a distinct difference between AT&T paying Apple directly for the retail cost of the iPhone and the AT&T paying Apple a portion of the subscribed dues.

This is very different than the current manufacturer/carrier model, but this not automatically make the iPhone a higher priced solution because it fails to offer some BS subsidized option. That is a similar argument that PC users make about the Mac which can seem more expensive than a PC at first glance, but where the long term usability of the machine is actually quite a bit cheaper.

Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"

subsidizeverb [ trans. ]
pay part of the cost of producing (something) to reduce prices for the buyer.

It's lexical semantics, but there is a distinct difference between AT&T paying Apple directly for the retail cost of the iPhone and the AT&T paying Apple a portion of the subscribed dues.

This is very different than the current manufacturer/carrier model, but this not automatically make the iPhone a higher priced solution because it fails to offer some BS subsidized option. That is a similar argument that PC users make about the Mac which can seem more expensive than a PC at first glance, but where the long term usability of the machine is actually quite a bit cheaper.

I know well the meaning of subsidize.

I don't believe there is any difference between this and the current model, other than accounting rules. This is merely time-payments instead of one payment. The 'source' of the funds for the payment is the same in both cases - the customers service contract. The only thing that would make it different, which may be the case, is if Apple is the only support source for the phone. This has real value and offloads additional cost from AT&T.

I hope this is the case because then I'm getting a lot of additional value (compared to the current model) for this money. WIth Apple I might get some real support. With phones I think we've all been on our own out there after purchase.